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Commitments and Contingencies and Other Matters | 12 Months Ended
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Dec. 31, 2012
Commitments and Contingencies and Other Matters |
Commitments and Contingencies and Other Matters | 10. Commitments and Contingencies and Other Matters Restructuring and Other Charges During 2011 and 2012, in response to challenging business conditions, we initiated activities to reduce and contain spending, including reducing our workforce, consultants and discretionary expenses. In conjunction with these activities, we recognized restructuring charges (credits) of approximately $3.8 million, $1.3 million and $(0.2) million during the years ended December 31, 2012, 2011 and 2010, respectively. During the years ended December 31, 2012 and 2011, we also recorded inventory write-offs of $1.0 million related to a discontinued product line in our Data Storage segment and $0.8 million related to a discontinued product line in our LED & Solar segment, respectively. These inventory write offs are included in cost of sales in the accompanying Consolidated Statements of Income. Restructuring expense for the years ended December 31, 2012, 2011 and 2010 are as follows (in thousands):
|  | Year ended December 31, |
--- | --- | --- | ---
|  | 2012 |  | 2011 |  | 2010 |
Personnel severance and related costs |  | $ | 3,040 |  | $ | 1,288 |  | $ | — |
Equity compensation and related costs |  |  | 414 |  |  | — |  |  | — |
Lease-related and other severance costs (credits) |  |  | 359 |  |  | — |  |  | (179 | )
|  | $ | 3,813 |  | $ | 1,288 |  | $ | (179 | )
Personnel Severance Costs During 2012, we recorded $3.0 million in personnel severance and related costs resulting from a headcount reduction of 52 employees. During 2011, we recorded $1.3 million in personnel severance and related costs related to a companywide reorganization resulting in a headcount reduction of 65 employees. These reductions in workforce included executives, management, administration, sales and service personnel and manufacturing employees' companywide. Lease-Related and Other Severance Costs (Credits) During 2012, we recorded $0.4 million in other associated costs resulting from a headcount reduction of 52 employees. These charges primarily consist of job placement services, consulting and relocation expenses, as well as duplicate wages incurred during the transition period. During 2010, we had a change in estimate relating to one of our leased Data Storage facilities. As a result, we incurred a restructuring credit of $0.2 million, consisting primarily of the remaining lease payment obligations and estimated property taxes for a portion of the facility we will occupy, offset by a reduction in expected sublease income. The following is a reconciliation of the liability for the 2012, 2011 and 2010 restructuring charges through December 31, 2012 (in thousands):
|  | LED & Solar |  | Data Storage |  | Unallocated Corporate |  | Total |
--- | --- | --- | --- | --- | --- | --- | --- | --- | ---
Balance as of January 1, 2010 |  | $ | 196 |  | $ | 486 |  | $ | 1,597 |  | $ | 2,279 |
Lease-related and other credits 2010 |  |  | — |  |  | (87 | ) |  | — |  |  | (87 | )
Total credited to accrual 2010 |  |  | — |  |  | (87 | ) |  | — |  |  | (87 | )
Personnel severance and related costs 2011 |  |  | 672 |  |  | 51 |  |  | 311 |  |  | 1,034 |
Total charged to accrual 2011 |  |  | 672 |  |  | 51 |  |  | 311 |  |  | 1,034 |
Personnel severance and related costs 2012 |  |  | 874 |  |  | 1,684 |  |  | 135 |  |  | 2,693 |
Total charged to accrual 2012 |  |  | 874 |  |  | 1,684 |  |  | 135 |  |  | 2,693 |
Short-term/long-term reclassification 2010 |  |  | — |  |  | 123 |  |  | 536 |  |  | 659 |
Short-term/long-term reclassification 2011 |  |  | — |  |  | 58 |  |  | — |  |  | 58 |
Cash payments 2010 |  |  | (196 | ) |  | (344 | ) |  | (1,597 | ) |  | (2,137 | )
Cash payments 2011 |  |  | (138 | ) |  | (159 | ) |  | (553 | ) |  | (850 | )
Cash payments 2012 |  |  | (960 | ) |  | (504 | ) |  | (310 | ) |  | (1,774 | )
Balance as of December 31, 2012 |  | $ | 448 |  | $ | 1,308 |  | $ | 119 |  | $ | 1,875 |
Long-term liability |  |  |  |  |  |  |  |  |  |  |  |  |
Balance as of January 1, 2010 |  | $ | — |  | $ | 229 |  | $ | 536 |  | $ | 765 |
Lease-related and other credits 2010 |  |  | — |  |  | (48 | ) |  | — |  |  | (48 | )
Short-term/long-term reclassification 2010 |  |  | — |  |  | (123 | ) |  | (536 | ) |  | (659 | )
Short-term/long-term reclassification 2011 |  |  | — |  |  | (58 | ) |  | — |  |  | (58 | )
Balance as of December 31, 2011 |  | $ | — |  | $ | — |  | $ | — |  | $ | — |
Asset Impairment Charges During 2012, we recorded an asset impairment charge of $1.3 million related to a particular asset in our Data Storage segment. During 2011, we recorded a $0.6 million asset impairment charge for property, plant and equipment related to the discontinuance of a certain product line in our LED & Solar segment. Minimum Lease Commitments Minimum lease commitments as of December 31, 2012 for property and equipment under operating lease agreements (exclusive of renewal options) are payable as follows (in thousands):
2013 |  | $ | 3,491 |
2014 |  |  | 2,128 |
2015 |  |  | 1,063 |
2016 |  |  | 588 |
2017 |  |  | 540 |
Thereafter |  |  | 93 |
|  | $ | 7,903 |
Rent charged to operations amounted to $3.5 million, $2.7 million and $1.7 million in 2012, 2011 and 2010, respectively. In addition, we are obligated under such leases for certain other expenses, including real estate taxes and insurance. Environmental Remediation Under certain circumstances, we could have been obligated to pay up to $250,000 in connection with the implementation of a comprehensive plan of environmental remediation at our Plainview, New York facility. We are indemnified by the former owner for any liabilities we may incur in excess of $250,000 with respect to any such remediation. No comprehensive plan has been required to date. Even without consideration of such indemnification, we did not believe that any material loss or expense was probable in connection with any remediation plan that may be proposed. We revaluated this exposure and concluded that there is no longer any potential exposure from this matter. We are aware that petroleum hydrocarbon contamination has been detected in the soil at the site of a facility formerly leased by us in Santa Barbara, California. We have been indemnified for any liabilities we may incur which arise from environmental contamination at the site. Even without consideration of such indemnification, we do not believe that any material loss or expense is probable in connection with any such liabilities. The former owner of the land and building in Santa Barbara, California in which our former Metrology operations were located, which business (sold to Bruker on October 7, 2010), has disclosed that there are hazardous substances present in the ground under the building. Management believes that the comprehensive indemnification clause that was part of the purchase contract relating to the purchase of such land provides adequate protection against any environmental issues that may arise. We have provided Bruker indemnification as part of the sale. Litigation Veeco and certain other parties were named as defendants in a lawsuit filed on April 25, 2013 in the Superior Court of California, County of Sonoma. The plaintiff in the lawsuit, Patrick Colbus, seeks unspecified damages and asserts claims that he suffered burns and other injuries while he was cleaning a molecular beam epitaxy system alleged to have been manufactured by Veeco. The lawsuit alleges, among other things, that the molecular beam epitaxy system was defective and that Veeco failed to adequately warn of the potential risks of the system. Although Veeco believes this lawsuit is without merit and intends to defend vigorously against the claims, and although Veeco maintains insurance which may apply to this matter, the lawsuit could result in substantial costs, divert management's attention and resources from our operations and negatively affect our public image and reputation. Because the Company believes that this potential loss is not probable or estimable, it has not recorded any reserves related to this legal matter. We are involved in various other legal proceedings arising in the normal course of our business. We do not believe that the ultimate resolution of these matters will have a material adverse effect on our consolidated financial position, results of operations or cash flows. Concentrations of Credit Risk Our business depends in large part upon the capital expenditures of our top ten customers, which accounted for 77% and 79% of total accounts receivable as of December 31, 2012 and 2011, respectively. Of such, LED and data storage customers accounted for approximately 56% and 21%, and 58% and 19%, respectively, of total accounts receivable as of December 31, 2012 and 2011. Customers who accounted for more than 10% of our aggregate accounts receivable or net sales are as follows:
|  |  |  | Accounts Receivable December 31, |  | Net Sales for the year ended December 31, |
--- | --- | --- | --- | --- | --- | --- | ---
Customer |  | Segment |  | 2012 |  | 2011 |  | 2012 |  | 2011 |  | 2010 |
Customer A |  | Data Storage |  |  | 16 | % |  | * |  |  | 14 | % |  | * |  |  | * |
Customer B |  | LED and Solar |  |  | 16 | % |  | * |  |  | * |  |  | * |  |  | * |
Customer C |  | LED and Solar |  |  | * |  |  | 31 | % |  | * |  |  | 11 | % |  | * |
Customer D |  | LED and Solar |  |  | * |  |  | * |  |  | * |  |  | 12 | % |  | 12 | %
Customer E |  | LED and Solar |  |  | * |  |  | * |  |  | * |  |  | * |  |  | 17 | %
Customer F |  | LED and Solar |  |  | * |  |  | * |  |  | * |  |  | * |  |  | 12 | %
* Less than 10% of aggregate accounts receivable or net sales. We manufacture and sell our products to companies in different geographic locations. In certain instances, we require deposits for a portion of the sales price in advance of shipment. We perform periodic credit evaluations of our customers' financial condition and, where appropriate, require that letters of credit be provided on certain foreign sales arrangements. Receivables generally are due within 30-90 days, other than receivables generated from customers in Japan where payment terms generally range from 60-150 days. Our net accounts receivable balance is concentrated in the following geographic locations (in thousands):
|  | December 31, |
--- | --- | --- | ---
|  | 2012 |  | 2011 |
China |  | $ | 28,132 |  | $ | 59,154 |
Singapore |  |  | 7,266 |  |  | 15,338 |
Taiwan |  |  | 6,390 |  |  | 1,281 |
Other |  |  | 3,853 |  |  | 4,188 |
Asia Pacific |  |  | 45,641 |  |  | 79,961 |
Americas |  |  | 13,917 |  |  | 11,098 |
Europe, Middle East and Africa |  |  | 3,611 |  |  | 3,979 |
|  | $ | 63,169 |  | $ | 95,038 |
Suppliers We currently outsource certain functions to third parties, including the manufacture of all or substantially all of our new MOCVD systems, Data Storage systems and ion sources. We primarily rely on several suppliers for the manufacturing of these systems. We plan to maintain some level of internal manufacturing capability for these systems. The failure of our present suppliers to meet their contractual obligations under our supply arrangements and our inability to make alternative arrangements or resume the manufacture of these systems ourselves could have a material adverse effect on our revenues, profitability, cash flows and relationships with our customers. In addition, certain of the components and sub-assemblies included in our products are obtained from a single source or a limited group of suppliers. Our inability to develop alternative sources, if necessary, could result in a prolonged interruption in supply or a significant increase in the price of one or more components, which could adversely affect our operating results. Purchase Commitments As of December 31, 2012, we had purchase commitments totaling $62.6 million all of which come due within one year. Lines of Credit and Guarantees As of December 31, 2012, we had bank guarantees outstanding of $15.1 million, which were partially collateralized by $2.0 million in cash that is therefore restricted from use. We had outstanding letters of credit of $0.9 million as of December 31, 2012. We also had $30.5 million of unused lines of credit and bank guarantees available to draw upon if needed.

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